Microsoft is reportedly preparing another round of job cuts that could affect nearly 2.5% of its workforce, placing the Xbox gaming division at the center of the restructuring. The move comes as the tech giant continues to pivot heavily toward artificial intelligence, raising questions about the future of its gaming strategy.
Multiple reports indicate that Microsoft may announce layoffs affecting around 5,700 positions globally, impacting sales, consulting, and the Xbox gaming division. With a current global workforce of approximately 228,000, even a 2.5% reduction represents a significant number of job losses. This would mark one of the largest workforce reductions at Microsoft since the 4% layoff in July 2025.
Although Microsoft has not officially confirmed which teams will be affected, the gaming division is widely expected to be the most impacted. Xbox has already undergone major changes since the company completed its Activision Blizzard acquisition. Several studios have closed, projects have been canceled, and teams have been reorganized. Recent reports even suggest that Microsoft is about to close Arkane Studios, effectively halting development of Marvel’s Blade.
The layoffs come at a time when Microsoft is investing billions of dollars in AI infrastructure, cloud services, and new software. Many industry experts believe AI has become Microsoft’s biggest priority. As a result, the gaming division may need to adjust to a new reality where efficiency and cost control take precedence over rapid expansion.
“If Xbox teams are included in the latest layoffs, it could point to a broader change in Microsoft’s gaming strategy,” the report notes. Instead of pursuing more acquisitions or larger development teams, the company may focus on making existing studios more productive. Services such as Xbox Game Pass are still expected to remain central to the company’s gaming plans.
Microsoft is unlikely to abandon gaming entirely, given that it owns some of the industry’s biggest franchises. However, the latest reports suggest that the company’s biggest investments are now flowing into AI. For Xbox, that means a stronger emphasis on careful spending rather than breakneck growth.
As the tech landscape continues to evolve, Microsoft’s next moves will be closely watched by industry observers and gamers alike.
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